United States v. Merchants' & Manufacturers' Traffic Association of Sacramento/Opinion of the Court

By the Act of June 18, 1910, chap. 309, 36 Stat. at L. 539, 547, Comp. Stat. 1913, § 8566, amending § 4 of the Act to Regulate Commerce [24 Stat. at L. 380, chap. 104], carriers were prohibited from charging more 'for a shorter than for a longer distance over the same line or route in the same direction' without obtaining authority from the Interstate Commerce Commission so to do. A period of six months from the passage of the amendment was provided within which carriers might file application for authority to continue charges of that nature then lawfully existing.

For many years prior to 1910 it had been a common practice to make freight rates from the East to Pacific coast points lower than to intermountain territory, because of competition by the Atlantic-Pacific ocean carriers. About 185 interior cities near the coast had been granted the same transcontinental rates as the ports of San Francisco and Oakland, because the competing water carriers customarily 'absorbed' the local rates or charges from the ports to those cities. Among the interior cities thus treated as 'Pacific Coast Terminals' were Sacramento, Stockton, San Jose, and Santa Clara. The extent to which the higher rates to intermountain territory were justified and the proper basis for 'back haul' rates had been the subject of many hearings before the Interstate Commerce Commission.

Proceeding under § 4, as amended, six railroads applied to the Commission under date of December 7, 1910, for relief in respect to west-bound transcontinental commodity rates. The applications, after enumerating the then-existing tariffs, sought authority specifically 'to continue all rates shown in the above-named tariffs from eastern shipping points designated to Pacific coast terminal points,' and generally 'to continue the present method of making rates lower at the more distant points than at the intermediate points, such lower rates being necessary by reason of competition of various water carriers' from Atlantic to Pacific ports. After prolonged hearings the Commission entered its so-called 4th section order No. 124, by which, while declining to grant the applications as made, it authorized charging, in some respects, lower rates for the longer hauls. The limitation of such charges was set by a zone system and rate percentage basis prescribed by the Commission, which involved an extensive readjustment of rates; but the existing practice of treating these interior cities as terminals was not disturbed. The validity of the order was attacked by the carriers in the courts, and, after three years of litigation, finally sustained in Intermountain Rate Cases (United States v. Atchison, T. & S. F. R. Co.) 234 U.S. 476, 58 L. ed. 1408, 34 Sup. Ct. Rep. 986.

Meanwhile the 'effective date' of the order had been extended by the Commission. After the decision of this court, further extensions of the 'effective date' were sought by the carriers and granted. Some modifications of the order were proposed by the carriers. Additional hearings were had in which many shippers participated. Changes in conditions occurring since the entry of the original order on July 31, 1911, were considered,-among others, that Congress had passed the Act of August 24, 1912 [37 Stat. at L. 568, chap. 390, Comp. Stat. 1913, § 8569], giving the Commission jurisdiction over transportation 'by rail and water through the Panama canal;' that the canal itself had been opened on August 15, 1914; that competing ocean rates had been lowered and service improved; and that the ocean carriers had discontinued the practice of 'absorbing' rates from the ports to interior cities. An elaborate supplemental report was made by the Commission on January 29, 1915, and another on April 30, 1915. The propriety of modifications in addition to those proposed by the carriers was shown and a new plan for constructing 'back haul' rates, developed by the Commission, was eventually embodied in the amended 4th section order No. 124 of April 30th, 1915, and adopted by the carriers in the tariffs filed thereunder. Following the limitation imposed by the amended order, the tariffs filed confined the low 'terminal' rates to ports of call like San Francisco and Oakland; and the interior coast cities, including Sacramento, Stockton, San Jose, and Santa Clara, were subjected to rates materially higher than San Francisco and Oakland, though much lower than those to intermountain territory.

Representatives of these four cities, conceiving them aggrieved by the refusal to grant them the same rates as the ports, and alleging that they had participated in whole or in part at hearings which preceded the entry of the last amendment order, applied to the Commission for a rehearing, and when their application was denied, brought this suit in the district court to restrain the enforcement as to them of the amended order, and of the tariffs filed thereunder. The city of Santa Clara and associations representing the traffic interests of Sacramento, Stockton, and San Jose joined as plaintiffs. The United States, the Interstate Commerce Commission, and the six railroads were made defendants. The bill alleged, among other things, that these cities had for a number of years enjoyed the same rates as San Francisco and Oakland; that large industries and other businesses had been established there because they enjoyed terminal rates; that their commercial importance and prosperity would be ruined if the rates were withdrawn; that no changed conditions existed justifying a withdrawal of terminal rates; that they had not been parties to the proceedings in which the orders were made; and that the 'orders authorizing withdrawal of terminal rates' from them were, among other things, 'discriminatory and unjust, were made without said cities having their day in court, or without giving them an opportunity to show the unreasonableness thereof, that no justification for such increase was shown, and the order of April 30, 1915, was without evidence, that petitioners have been denied the equal protection of the law and deprived of property without due process of law, to their irreparable damage.'

The case was heard before three judges; and a final decree was entered which declared that the 'orders of the Interstate Commerce Commission of January 29, 1915, and April 30, 1915, in 4th section applications Nos. 205, 342, 343, 344, 350, and 352,' in so far as they authorize the carriers to charge for the transportation of west-bound transcontinental freight destined to Sacramento, Stockton, San Jose, and Santa Clara, California, 'any greater amount than is concurrently charged for the like carriage of like freight to San Francisco and Oakland, California, were beyond the statutory powers of the Interstate Commerce Commission, and the enforcement thereof should be enjoined; and said orders in the particulars above mentioned are hereby canceled and set aside.' The decree also enjoined and canceled to like extent the tariffs filed in pursuance of such orders. The district court rested its decision that the Commission had no statutory power to enter the amended order upon the ground that an order authorizing higher rates to these interior cities could not legally be entered unless there was an 'application' to it by the carriers for that specific purpose and 'a hearing upon the particular application as in a special case;' that there had been no such application and hearing, and that consequently the orders were void and the tariffs filed in pursuance thereof illegal. Merchants' & Mfrs. Traffic Asso. v. United States, 231 Fed. 292.

The appeal, in which all the defendants joined, raises important questions involved in the administration of the 4th section as amended June 18, 1910, namely:

First: Is it essential to the validity of an order authorizing a lower rate for a longer haul, that it be based upon an application asking only the precise relief granted?

Second: What is the remedy of a community or shipper which deems itself aggrieved by the order made?

The orders here in controversy were confessedly based upon applications made by the carriers. Both the amended orders and the decree recite by numbers the applications dated December 7, 1910. The objection made by the appellees is that the limited authority granted by the Commission had not been applied for; since the carriers asked specifically for leave to continue lower rates, which were the same for ports and for interior California cities, but the Commission permitted these rates to ports while it denied like rates to the interior cities. Respondents deny that the district court holds in effect that applications for relief must be granted in toto or denied in toto; but such is the necessary effect of its decision. Amended § 4 empowers the Commission 'upon application' to authorize a carrier 'to charge less for longer than for shorter distances.' These carriers asked leave, among other things, to charge on west-bound transcontinental freight to about 193 coast and interior cities much less than to intermountain territory. The Commission permitted them to charge, to eight of these cities which were ports, as much less as the application requested; but as to the other 185, which were interior cities, including the four complaining here, permitted the carriers to charge only somewhat less. In other words, the Commission granted a part of the relief asked. The district court says it had no power so to do. But there is nothing in the act to justify limiting the power of the Commission to either a grant or a denial in toto of the precise relief applied for. Such a construction would make § 4 unworkable and defeat the purpose of the amendment. It is at variance with the broad discretion vested in the Commission and the prevailing practice of administrative bodies. It fails to give effect to the provision that 'the Commission may from time to time prescribe the extent to which such designated common carriers may be relieved from the operation of this section.' It is inconsistent with Intermountain Rate Cases (United States v. Atchison, T. & S. F. R. Co.) 234 U.S. 476, 58 L. ed. 1408, 34 Sup. Ct. Rep. 986, where the order sustained granted relief very different from that applied for; and it finds no support in United States v. Louisville & N. R. Co. 235 U.S. 314, 322, 59 L. ed. 245, 251, 35 Sup. Ct. Rep. 113, cited by the district court, in which case relief from the operation of the 4th section had not been granted. The clause in amended 4th section, which declares 'that upon application to the Interstate Commerce Commission such common carrier may in special cases, after investigation, be authorized to charge less for longer than for shorter distances' was designed to guard against the issue, by the Commission, of general orders suspending the long and short haul clause, and to insure action by it separately in respect to particular carriers, and only after consideration of the special circumstances existing. Whenever such consideration has been given, 'the Commission may from time to time prescribe the extent to which such designated common carrier may be relieved from the operation of the section.'

It may be doubted whether application by the carrier is a prerequisite to the granting of relief. As was said in Intermountain Rate Cases (United States v. Atchison, T. & S. F. R. Co.) 234 U.S. 476, 485, 58 L. ed. 1408, 1421, 34 Sup. Ct. Rep. 986, § 4 vests in the Commission the 'primary instead of a reviewing function' to determine the propriety of a lesser rate for a longer distance; and § 13 declares that the Commission 'shall have the same powers and authority to proceed with any inquiry instituted on its own motion as though it had been appealed to by complaint or petition under any of the provisions of this act, including the power to make and enforce any order or orders in the case, or relating to the matter or thing concerning which inquiry is had, excepting orders for the payment of money.' Unless formal application be an indispensable prerequisite to the exercise by the Commission of the power granted by the 4th section, its absence or a defect in it could be waived; and it would be waived by the filing of tariffs under the order entered. For the order is permissive merely. The carrier is the only necessary party to the proceeding under § 4. The Commission represents the public. While it is proper and customary for communities or shippers interested to participate in hearings held, there is no provision for notice to them. They are not bound by the order entered; at least, in the absence of such participation. And if the rates made by tariffs filed under the authority granted seem to them unreasonable, or unjustly discriminatory, §§ 13 and 15 afford ample remedy. Respondents contend that, after the amended order was entered and the tariffs filed, they did apply to the Commission for relief, 'but were denied the right of a hearing,' and that 'their protest and demand were ignored and denied.' What they did was to petition for a 'rehearing' in the proceedings under the 4th section, to which they now say they were not parties, instead of applying for redress under § 13, as they had a legal right to do. They mistook their remedy. To permit communities or shippers to seek redress for such grievances in the courts would invade and often nullify the administrative authority vested in the Commission; and, as this case illustrates, the attempt of the court to remove some alleged unjust discriminations might result in creating infinitely more. The decree of the district court cancels the amended order and the tariff only so far as it concerns the four complaining cities, and thereby discriminates perhaps most unjustly in their favor as against the other 181 interior cities.

It was also contended on behalf of the four cities that the amended orders violated the clause added to § 4 by the Act of June 18, 1910, which provides that 'whenever a carrier by railroad shall in competition with a water route or routes reduce the rates on the carriage of any species of freight to or from competitive points, it shall not be permitted to increase such rates unless after hearing by the Interstate Commerce Commission it shall be found that such proposed increase rests upon changed conditions other than the elimination of water competition.' The answers to this contention are many. What these four cities complain of is not increase of rates, but the fact that San Francisco and Oakland may be given rates lower than theirs; and they strongly deny that water competition has been eliminated. Indeed, it was the increased effectiveness of water competition due to the opening of the Panama canal-a notable change in conditions-which compelled the rate readjustment of which they complain; and the higher rates to the interior cities, made under authority of the Commission, were granted after prolonged hearings, as part of the general readjustment of transcontinental rates. The provision relied upon has no application to such a case.

The decree of the District Court must be reversed, with directions to dismiss the bill.

Reversed.